Houston: A Permanent Boomtown

CONSIDERING THE circumstances of its rise, Houston’s decline must have been deeply gratifying to many people. Through the 1970s, as the rest of the country struggled to cope with rising oil prices, Houston grew proud and fat. While the auto industry fell apart, while people poured out of Cleveland and Detroit, Houston seemed to profit from their misery. In 1970 two million people lived in the Houston area; in 1980 there were three million, making it by far the fastest-growing big city in the country. Buildings sprang up everywhere, and Houston became the favored showplace of the world’s great architects. Because of the absence of zoning, new skyscrapers could turn up anywhere— a sixty-four-story building called the Transco Tower became renowned in Houston as the “nation’s tallest building not in a central business district,” an honor akin to “longest punt not on a football field.” From 1971 to 1981 there was more construction in Houston than in any other American city—even Los Angeles, which contained twice as many people and was hardly in decline. Businessmen did their commuting in helicopters; the real-estate market made Everyman a potential millionaire; it was the time of boom.

In Houston the 1970s had all the markings of a speculative bonanza, driven by blind-luck profits from oil and land. Was petroleum inherently more valuable at the end of the decade than at the beginning? Perhaps by a little, but not by any factor resembling the 1,000 percent increase in real oil prices that the Organization of Petroleum Exporting Countries had engineered. At the beginning of the decade a barrel of oil sold for less than $2; by the end the price had gone over $40. For Houston, as for Anchorage and Riyadh, this seemed to be all to the good. There was more money to be spent on offshore rigs, condominiums, and everything else the city made. Observers from the rest of the country could be forgiven for concluding that Houston was dancing on America’s grave. In the mid-seventies a northern journalist wrote a celebrated book depicting the emerging “Southern Rim” as a land of greed, rootlessness, and crypto-fascist tendencies. He declared Houston its natural capital, intending no compliment.

Many Houstonians returned the favor, unable to conceal their belief that their prosperity was a standing rebuke to the floundering Flints and Youngstowns of the world. In 1982, in the last of the heady days for Houston, I listened to a prominent local newspaperman describe one puzzling trait of the “black-platers” who kept rolling into town, their automobiles bearing that dark badge of failure the Michigan license plate. You’d figure they’d want to trade them in for Texas plates as soon as possible, he said. Why are they so slow to get with the program? A few months earlier, when preparing for my family’s move to Texas, I had learned at the U-Haul office that there would be a $300 drop-off charge. Everyone was going to Texas and no one was coming back.

A year later, when we came back east, we had to pay another drop-off charge. By then the flow was moving the other way. In the second half of 1982 the Houston district of U-Haul sent three times as many trucks and twice as many trailers to the Chicago-Detroit district as it received. People stopped coming to Houston because oil had stopped meaning instant wealth.

The clearest indicator of the change was the Hughes Tool Company’s “rig count,” an index watched as closely in Houston as poll results are in political campaigns. The rig count tells howmany rotary rigs are actively drilling for oil or gas in the United States. It rises and falls with the more fundamental index—the price of a barrel of oil—and by implication it indicates everything that matters about the industry’s health; how many roughnecks will be hired, how much drilling mud will be sold, how much petroleum will be refined. In the bad old days, before OPEC, the rig count had drifted from 2,000 in the early 1960s to just below 1,000 in the early 1970s, as American fields were drained of the oil worth exploiting at $2 a barrel. It started heading up again after OPEC became a serious force in 1972; reached 2,000 in 1977, as Jimmy Carter pleaded for more domestic drilling; passed 3,000 in 1980, when the Iranians priced their oil out of the world market and panic buying drove the spot-market price to new highs daily; and reached its giddy peak near the end of 1981, when it stood at 4,530.

Then came the horrifying period that many Houstonians now refer to as the “free fall.” With oil at $40 a barrel, producers around the world tried to cash in by expanding production, just as consumers were drastically cutting back. Soon there were the makings of today’s oil glut. By the end of 1982 the rig count was below 3,000, and through 1983 it gained speed in its descent. By the late summer it had crashed through 2,000 and was still headed down. The crews who had worked on those 2,500 nowidle rigs were laid off. The companies that built, sold, and serviced oil-field equipment went broke. The house of cards fell in.

The dentists and insurance men who had taken a flyer on condos or oil leases were suddenly pleading their way out of bankruptcy court, alongside grizzled oilmen who had made profits through thirty years of low prices but had gone heavily into debt to buy new equipment when it seemed the boom would never end. Houston’s construction could not be turned off instantly, but the flow of new building permits stopped abruptly.

In June of 1983, during a severe recession, the unemployment rate for the nation as a whole was 10.2 percent. In Houston—where unemployment had averaged 4 percent during the postOPEC years, where the monthly rate had dipped as low as 2.6 percent, where there was supposed to be work for everyone with strong arms and the right attitude — the rate was 10.2 percent. Three months later, when the national rate edged downward and Houston’s didn’t, the city’s unemployment rate was for the only time in its history higher than the national average. In 1983 Houston lost nearly 100,000 jobs, and for the first time since the Depression the number of employed people shrank.

Ever since then Houston’s troubles have been amply, even lovingly, covered in the national news. The commercial real estate that was thrown up with such bravado now seems to represent grotesque excess. The New York Times and CBS News have pointed out that Houston has more unoccupied office space than Denver—or San Francisco—has total space. Personal and corporate bankruptcies are up; restaurant and hotel prices are down. Last fall several prominent business figures put together a campaign to do what would previously have seemed redundant: advertise Houston’s virtues in hopes of attracting new business and investment.

In short, the common view is that Houston got what was coming to it—as Saudi Arabia might, if it didn’t have quite so much oil. With this image in mind, it comes as a shock to visit Houston and see how little it resembles any of the truly troubled manufacturing-belt cities whose factories are closing and whose people are moving away. In fact, the most remarkable and under-reported aspect of Houston’s economy is not how far it fell but how quickly it has come back.

ANDREW RUDNICK, AN economist with the Houston Economic Development Council—a Chamber of Commerce offshoot now trying to spread the good news about the city—says, “My premise is that the eighteen-month decline in the Houston economy was from here [hands over head] to here [six inches down], whereas Detroit’s was from here [knees] to here [ankles]. It was only a decline in the rate of growth. It happened quickly and was modest, compared to the long-time decline in the upper Midwest. Unless the oil market drops dramatically, we will come out of this with a healthier economy.”

There are exceptions to Houston’s general recovery: it will be a long time before prudent investors will want to put up another office building or try for a quick killing selling condos to rich Mexicans. The freeways are lined with mobile-home sales lots, and roughly one trailer in two bears a banner announcing “REPO” in big letters. Each repossession obviously means bad news for a family and, less directly, for merchants, banks, and the rest of the economic food chain. But by most of the measures of an area’s economic health—its ability to produce goods, create jobs, and distribute wealth—Houston is not doing badly at all. Even in 1985, when the auto industry is up and oil is down, blue-collar workers especially would find their prospects better in Houston than in Detroit.

Houston’s unemployment rate, which was 8.0 percent at the beginning of 1984, was down to 6.3 percent by June, one point lower than the national average. By the end of the year it was 5.9 percent. The area’s population never stopped growing, nor did retail sales or manufacturers’ shipments. The Houston Help Wanted Index, which measures ads in the local papers (and is compared with a base level of 100 in 1967), had soared to 400 in the glory days and then fallen to the low 200s in 1983. It was up to almost 300 late last year. The only measures that were not really improving were those involving construction and real estate. Meanwhile, in Detroit the unemployment rate was 12.7 percent. That is, at a time when the auto industry was booming, when its companies were enjoying the brief summer of protection from Japanese imports and were making more cars and money than they had in years, Detroit’s unemployment rate was still worse than Houston’s has ever been, even at the depths of the oil bust. Which city, again, was supposed to be “recovering”?

Why didn’t the collapse of the oil market kill Houston? Why did the city rebound so fast? There is a Chamber of Commerce answer to the question, which stresses the city’s estimable “diversity,” a trait little emphasized before 1982.

Through most of its 150-year history Houston had not exactly been a shrine to racial or economic diversity. In the 1960s and 1970s the city government appeared to be run as a subsidiary of the Chamber of Commerce (when one mayor, Louie Welch, left office to become head of the Chamber, the move was widely viewed as a promotion), and the police force was chronically embroiled in lawsuits over and federal investigations into its treatment of the city’s black and Mexican American citizens. The big change started in 1981, when Kathy Whitmire, a technocratic city administrator, was elected mayor of a city where the big deals had always been handled by big men. The racial climate began to moderate with the arrival of Lee Brown, who was recruited from Atlanta and became Houston’s first black police chief in 1982. Coincident with these signs of social progress was the spreading awareness that the city might have to look beyond the deal-makers and oil wells on which its economy had traditionally relied.

Even during the boom Houston was never quite as dependent on oil as Detroit has been on automobiles. Exact figures are hard to obtain, but somewhere between a third and a fourth of Houston’s “gross regional product” is estimated to have come from the energy business, while at least half of Detroit’s has come from automobiles. The companies hardest hit by the decline were not those that sold oil but those that sold to the oil industry. Local manufacturers supplied drilling bits, offshore rigs, geophysical expertise, and hundreds of other products and services to energy producers around the world. The rule of thumb was that each rig operating anywhere in the world meant forty-five jobs in Houston, an equation whose effects seemed much less attractive when the rig count was going down than when it was going up. “When the market softens, the oil companies can cut back on operations, but you’ve always got some oil flowing,” says M. A. Wright, who was chairman of Exxon USA during the boom of the 1970s. Wright is now the chairman of Cameron Iron Works, a local firm that has historically specialized in oil-field equipment and that has laid off nearly 60 percent of its work force in the past three years. He says, “The suppliers are the ones who are really hit. When rotary rigs aren’t turning, Hughes isn’t selling any bits and we aren’t selling any blowout preventers. We had a five-year backlog of orders that disappeared in six months.”

THE HOUSTON Economic Development Council claims that Houston’s future economic growth will come from three sources that have almost nothing to do with oil.

One is the Texas Medical Center, a dense concentration of hospitals and research institutions that has long been a source of civic pride and that already employs some 50,000 people. Another is the National Aeronautics and Space Administration’s Lyndon B. Johnson Space Center, twenty-five miles southeast of downtown Houston. The third is the Houston Ship Channel, which connects Houston with the Gulf of Mexico and has made the city into a major port, handling more than half the nation’s agricultural exports.

From the official Houston point of view, what these three enterprises have in common is their potential as staging areas for privately financed economic growth. From discoveries at the medical center will come commercial spin-offs that could eventually prove as important as the electronic products spawned in the labs of Stanford and MIT (“They have the technology, but they just haven’t been commercializing it,” M. A. Wright says sorrowfully. “Doctors used to come here for a year’s training, and when they got back home they’d want to order the same drugs or equipment they’d used in Houston. The medical center would have to tell them it wasn’t on the market.”) The NASA installation makes Houston a logical center for whatever industries eventually emerge to manufacture products in space or make supplies for space travel. The ship channel has already proved its worth as a cradle of manufacture. Its construction, at the turn of the century, created a demand for the local production of cement, iron, and related goods, and today its banks are lined with refineries and chemical plants.

There is, of course, another similarity among these three pillars of economic diversity, which is that each of them is the product of governmental, rather than purely business, initiative. NASA is the clearest example: whatever industries it eventually creates will exist only because the federal government invested in manned space flights, and they will exist in Houston only because the state’s politicians, from Lyndon Johnson to Albert Thomas, the Houston congressman who was the chairman of the appropriations committee that controlled the space agency’s funding, muscled the installation into Texas in the early 1960s.

The ship channel also represents a public investment in what would today be called infrastructure. Almost as soon as Houston was founded, in 1836, local businessmen dreamed of dredging the shallow Buffalo Bayou so as to open a navigable route to the sea. But the channel did not come into being until the U.S. Congress gave in to the entreaties of two of Albert Thomas’s predecessors in the House, Joseph C. Hutcheson and Thomas H. Ball, and agreed to pay for the dredging.

As for the medical center, several of its hospitals were started by private philanthropy, but its dramatic postwar expansion reflects the new public subsidy of medical research, medical training, and medical care. Dr. Michael DeBakey, who along with Dr. Denton Cooley is one of the medical center’s two resident superstars, became almost as notable for attracting government funding as for performing vascular surgery. The state of Texas subsidizes students at Baylor College of Medicine, DeBakey’s base at the medical center, even though it is a private school.

Houston’s buccaneer capitalists regard as at most a mild irony the fact that their emerging industries have been fostered by the state. “I’ve got nothing against using the government to help achieve a private-enterprise goal,” Jack Rains, an executive of an architecture and engineering firm called 3D/International, says. Certainly Rains and his colleagues do not perceive Houston’s experience as an argument for industrial planning, in the sense of public investment in facilities that industry can use in unexpected ways.

They do concede that Houston’s recovery has been made easier by another pro-planning, anti-invisible-hand approach. Like many big cities of the Rust Belt, Houston has recently endured major factory shutdowns. In October of 1983, for instance, Armco Steel announced that it would close its Houston works, which had employed 4,000 workers at its peak and still had 2,000 employees at shutdown time. The mill had suffered from foreign competition birr was finished off by the oil bust, which took away the market for the high-quality plate steel it had supplied to drilling platforms.

In many midwestern cities companies have concealed their difficulties until the moment came to surprise workers with layoff notices. Armco’s management engaged union members in an effort to save the mill as soon as the troubles began. “There was an extremely intense effort to share every bit of information about the problems, the probabilities, and the opportunities,” Terry Hudson, a former Armco official, explained to me. “The company’s books were open to everyone. We tried to break the complex accounting jargon down into clearer terms. We got the total involvement of everyone, and we would have saved the mill—we’d made it much more efficient—but we ran out of time.”

When the mill finally closed, Hudson oversaw a retraining and job-placement effort that, according to all accounts, was phenomenally successful. A year after the shutdown he could say, “There has not been one lawsuit and not one grievance filed. I can honestly tell you that there is no animosity against the company. We came up with a prototype program for helping dislocated workers, and it ended up being a marvelous way to get hourly employees into other work.”

I was skeptical until I talked to some of the former Armco workers and the United Steelworkers district director, who agreed that the company had tried hard and that nearly everyone had found work.

EVEN IF MEDICINE, space, and shipping provide Houston with the perfectly diversified economy for the 1990s, even if the ex-Armco workers are better off than their northern counterparts laid off by U.S. Steel, there is something unsatisfactory about the notion that either business-labor cooperation or the future growth sectors account for Houston’s recent rebound. After all, there was no sudden surge in medical or space employment to explain the drop in the unemployment rate. I was more impressed during my visit by a line of reasoning that came spontaneously from many Houstonians once they got past the standard Chamber of Commerce argument. It dwelt on one of Houston’s traits—more distinctive than the space center, more even than the suburban skyscrapers—that helps explain its air of chaos as well as its capacity for growth.

Jack Rains, of 3D/International, is both an exponent of and a piece of evidence for this hypothesis. A fleshy man in his mid-forties, Rains is a Texas A&M graduate who practices the folksy-anecdote, barnyard-language style of business operation that comes as second nature in Houston. He flatly dismisses any comparison of Houston’s difficulties with Chicago’s or Detroit’s.

“Those are old places. This is a new place. Houston is incomplete. It’s like an adolescent who is still a little gawky but has great potential. The people who say we’ve got problems are the same ones who look at a snapshot and tell you where a train is headed.”

With the boosterism boiled out, Rains’s argument is that Houston will overcome its energy problems—indeed, has largely done so already—because it is so adaptable a society, can change so fast. It exists outside the world of zero-sum economics, where whatever I gain you lose, because its people are accustomed to thinking of new possibilities instead of competing for existing markets or jobs. The city’s ability to adapt and respond, in turn, is linked to the very qualities that most unnerve outsiders: the chaos and lack of control that typify everything from its no-zoning ideology to the absence of a clear ruling class.

When Houstonians want to illustrate this point, they often contrast their city not with New York or Boston but with its in-state opposite, Dallas—controlled where Houston is loose and random, prim where Houston is crass and raw. “Houston was always the kind of place where you could walk in with a good business plan and walk out with $50,000,” Lance Tarrance, a prominent Republican pollster, says. “In Dallas, where I grew up, they wanted to know about your mother and father and probably your blood type. In Dallas there are five country clubs, and you sign up when you’re born. You get into the right one and you’re set for life. In Houston they just create new ones.” Tarrance’s business surroundings epitomize the Houston he describes. His office is in a new high-rise called Tarrance Plaza, located on FM (Farm-to-Market) 1960, which has been converted within the past fifteen years from a small two-laner through the piney woods to a jumble of office buildings and K-Marts.

“There is a sense that the natural resources are down here, that we’re like Chicago a hundred years ago,” Tarrance says. “People have the sense that things are still moving our way. There’s a psychological feeling of room to move around in—not just land but space to make your own way.”

B. W. Moore is the chairman of Moorco, a holding company he put together two years ago when another Houston company, imperiled by the oil bust, needed to sell its assets and raise capital fast. Moore is a tidy, academiclooking man who appears to be dressed for success in Boston rather than Houston. One of Moorco’s subsidiaries is a manufacturing plant in Erie, Pennsylvania; another is in Wrentham, Massachusetts. When I interviewed him, Moore spoke respectfully of the work ethic and the ethnic ties in those areas, but he said that only in Houston could he have gotten his company off the ground.

“There is no controlling group in Houston—not private, and not governmental. That is the most important fact about the place. Because no one is in control here, you can generally work out a way to get things done. When I was back in Pittsburgh, the business community was so tight that if you weren’t a member of the Duquesne Club, it was very hard to get anything done. To put together the people to take the original risk with this company, I had to come here. It wouldn’t have been possible in the more settled areas of the country. [A major Pittsburgh bank] has come into the deal, but back in Pittsburgh I couldn’t have gotten their attention.”

Houston’s venture capitalists are the people most likely to talk about the “frontier spirit” and “wide-open possibilities,” but many of its other citizens behave as if they, too, believe that their choices are not constrained by the jobs they happen to hold or the identities they have previously been given. The most striking evidence is the anomaly of Houston’s employment figures. Of the 100,000 jobs that disappeared in 1983, only about 30,000 had been restored by the end of 1984. In most places the obvious result would be 70,000 additional people unemployed, Yet Houston’s unemployment rate dropped steadily — and much more rapidly than the lost jobs were restored. How could this be?

Mass migration could not be the answer, because the city’s population and its work force have continued to grow. Only the most recently arrived of the “black-platers” are thought to have gone back north in 1983. The explanation, according to the Texas Employment Commission, rests on a factor that rarely enters the calculations when most cities discuss lost jobs: a boom in self-employment.

The references to “jobs” in Houston’s employment figures include only “wage and salary employment”—that is, jobs on someone else’s payroll. They exclude self-employment, the category which in Houston has enjoyed the most substantial recent growth. People have set up repair shops and small stores. I talked to an oil-field worker who has opened an income-tax service and to an ex-Armco employee who repairs cars from his home garage. Most of these people would be making more money if the steel mill were still open or the derrick were still running—but for now those jobs don’t exist. They seem to think they are better off than if they were unemployed, and they take it for granted that their choices are not limited to the jobs listed in the paper.

A society of entrepreneurs and freebooting recent arrivals from someplace else, a city committed to an absence of central control and to the doctrine of every man for himself, is not always a pretty or comfortable place to be. Houston now proves that point—as Chicago did a hundred years ago, and as the fastestgrowing regions of the United States always have. Houston is, and is proud of being, a place where people come to make money. Other cities would also like to make money, without the attendant turmoil. It is more comfortable to have an established social order, traditional neighborhoods, regnant good taste. But can the aesthetic failings and the rootlessness of a place like Houston be separated from the resilience and sense of possibility that have put so many of its people back to work?

It’s hard to think of evidence that the combination is possible—that life can be both orderly and adjustable, both secure and new. Perhaps the Japanese offer evidence. Nothing is more confounding, from the Western point of view, than their ability to maintain a tidily cohesive domestic society while being all too agile and adaptable in international competition. They seem more like a tribe, a family-state, than anything we can recognize as a pluralistic society. Life might be easier for us if we could imitate them, but we can’t, we’re different.

Americans have defined themselves by their willingness to meld many races and ethnic groups (the Japanese are famed for their xenophobia, even toward other Asians), and through history Americans have always been lighting out for the territories, looking for elbow room and a chance to start over again. That is why Mark Twain is an American writer and Henry James really isn’t; it is why a place like Houston shows us something elemental about the American soul, leaving us at once appalled and inspired.

—James Fallows